Research Summary
The report discusses the misuse of stablecoins, particularly Tether (USDT), in illicit activities such as money laundering and online gambling. It highlights the challenges and risks associated with the deviation of USDT’s exchange rate in the black market, and the methods criminals use to launder money using cryptocurrencies.
Key Takeaways
Stablecoins and Illicit Activities
- Stablecoins’ Role in Illicit Activities: The report reveals that stablecoins, especially USDT, are widely used in illegal activities such as network fraud, online gambling, and money laundering. Criminals accept stablecoins that deviate significantly from the market exchange rate to launder risky crypto funds.
Reverse Freeze and Blacklisting
- Enforcement Freezes and Blacklisting: The report explains the concept of “Reverse Freeze,” where an exchange account may be frozen by law enforcement agencies if it receives USDT related to a case. The issuer of USDT, Tether, can assist law enforcement agencies by “blacklisting” specific addresses to restrict their USDT operation permissions, effectively freezing the funds.
Score Running and Money Laundering
- Score Running as a Money Laundering Tool: The report introduces “Score Running,” a term used by criminals for money laundering activities. Score running platforms recruit individuals to register accounts on cryptocurrency trading platforms, buy USDT at market prices, and sell it back to the platform at a higher price, effectively laundering funds without dealing with fiat currency directly.
Proxy Payment Platforms
- Proxy Payment Platforms and High-Risk Funds: The report discusses how some proxy payment platforms accept USDT deposits and use fiat funds to help users make payments on other platforms. These platforms do not distinguish the source of users’ USDT or have a comprehensive KYC mechanism, resulting in a large influx of high-risk funds.
USDT Money Laundering Risks
- USDT’s Involvement in Money Laundering: The report reveals that addresses with money laundering risks in the Tron network received a total of over 64.25 billion USDT from September 2021 to March 2023. This indicates that cryptocurrencies, mainly stablecoins, are being exploited by money laundering gangs.
Actionable Insights
- Enhance Anti-Money Laundering Measures: Web3 enterprises and cryptocurrency trading platforms should enhance their anti-money laundering risk control strategies to mitigate the risks associated with illicit activities involving cryptocurrencies.
- Improve KYC Mechanisms: Proxy payment platforms and other similar entities should improve their Know Your Customer (KYC) mechanisms to prevent the influx of high-risk funds.
- Cooperate with Law Enforcement: Cryptocurrency platforms should establish cooperation with law enforcement agencies and compliance departments serving various national government departments to assist in the investigation and prevention of illicit activities involving cryptocurrencies.
